Colombia and Panama have given each other another 60 days to come to agreement on how to combat Colombian tax evasion through Panamanian banks.
The two countries failed to meet the negotiation deadline set for the exchange of tax information after one year, extending a further 60 days, in a Colombian bid to fight money laundering and tax evasion on Panamanian soils.
The bilateral negotiations seek to enable the efficient exchange of tax information, if successful Colombia will have access to figures of savings that Colombian tax evaders are hiding in the neighboring country.
The deadline of September 30 was set for negotiations last October following a bitter dispute between the countries with Panama threatening sanctions on Colombia, considering it to be discriminatory against the country after classifying Panama as a tax haven.
Finance Minister Mauricio Cardenas commented “It is noteworthy that there has been progress, dedication, but there are complex issues. Negotiations are being held secretly, as agreed, but we are optimistic that we will reach an outcome. ”
Panama’s Finance Minister Dulcidio De La Guardia last week gave warning that amid negotiations delegates were considering an extension, he additionally warned that his country “does not negotiate with finite limits”.
Though an exact number is not known, initially estimated to be between $2-$7B in losses for the Colombian government as citizens continue to hide money in Panama and other countries as a means of avoiding taxation.
This money, Colombia’s Finance Minister Mauricio reports he believes should be used to help the poor in Colombia, and fund the post-conflict process in the aftermath of the Cuba peace talks.
2014 tax haven dispute
Last October tensions flared between the countries when Colombia declared Panama a tax haven, over the Central American country’s failure to meet a deadline to sign a bilateral tax information exchange agreement. As a consequence money transfers were set to incur taxes of 33%, instead of the usual 10%.
In response Panamanian officials gave Colombia an ultimatum: if the country was not removed from the list sanctions would be placed on the country, including imposition of VISAs for travel, and tax changes, even threatening the deportation of thousands of Colombian’s living illegally in the country, giving the Colombian government a week to make a decision.
The disputing parties resolved to sign an agreement for cooperation in the exchange of tax information, signing a memorandum of understanding that lays the foundation for further negotiating a double taxation treaty. The deadline for the exchange of this information was set as September 30, 2015.
“Achieving an agreement to exchange tax and financial information with Panama is an important step for international cooperation in the fight against money laundering and tax evasion,” said Finance Minister Mauricio Cardenas reported at the time.
Panama is the largest foreign investor in Colombia after the United States, and has been one of Latin America’s fastest growing economy since 2008, showing a 6.2% GDP growth last year, with 2015 forecasts to remain at this level, almost double Colombia’s predicted 3.5%.
Much of that growth has been driven by favorable tax structures attracting foreign investment and companies, where exemptions from income, property and import taxes are often granted. These kinds of favorable taxing laws made Panama by far the largest foreign investment market for Colombia, with over 40% of Colombia’s 2013 total going there.
A recent report from the World Economic Forum ranked Panama as number 2 in Latin America’s top 10 competitive economies, with Colombia sitting at fifth position. Improvements on a global level were seen by the country largely attributed to improvement in financial market development, despite diminishing oil prices and increases in inflation.